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Two Seattle-area men, including a former senior manager in Microsoft's finance department, were charged Thursday with 35 criminal counts of illegal insider trading by U.S. prosecutors and face up to 20 years in prison.

In a parallel lawsuit, Brian Jorgenson and Sean Stokke were accused of violating securities laws by the U.S. Securities and Exchange Commission (SEC).

The pair made nearly $400,000 in profits in a series of stock trades between April 2012 and October 2013, the SEC and the U.S. Attorney for the Western Washington District alleged in court documents. The trades were made and profits realized based on insider tips that Jorgenson, at the time with Microsoft, provided Stokke.

Jorgenson was fired by Microsoft when his part in the scheme came to light last month. Before that, however, he was a senior manager in the company's Treasury Group, where he was responsible for managing Microsoft's corporate cash and investments.

The two were slated to appear in a Seattle federal court Thursday afternoon to face the criminal charges.

Stokke, an active day trader, made the stock puts and calls from a pair of accounts during stretches that preceded Microsoft earnings reports in July and October 2013, and prior to the Redmond, Wash. company's announcement in May 2012 that it was investing $300 million in bookseller Barnes and Noble to partly finance a partnership focused on electronic books.

In each case, Department of Justice (DOJ) and SEC investigators claimed, Jorgenson knew of the upcoming events and their likely financial impact on Microsoft and Barnes and Noble stock. He passed that information to Stokke via email, telephone calls and texts, the agencies said.

The duo made their biggest killing on the market in five months ago, when they raked in over $195,000 after Microsoft surprised Wall Street with dismal earnings on July 18, largely because of a massive $900 million write-off to account for poor sales of the Surface RT, the tablet that launched in October 2012.

Microsoft's stock dropped nearly 11% in trading after the earnings report was made public. Previously, Stokke had purchased a series of put options starting on July 12, and profited on Microsoft's sinking price.

In April 2012, Stokke used Jorgenson's insider information to purchase call options on Barnes and Noble shares, which climbed 49% after the Microsoft investment was revealed the next month. From that tip, the two profited to the tune of nearly $185,000, said the DOJ and SEC.

Jorgenson and Stokke knew each other from time spent working at Seattle asset company Parametric Portfolios.

According to an affidavit filed by FBI Special Agent Kathleen Moran, Jorgenson and Stokke both admitted to illegal insider trading in interviews in early November.

"Stokke explained that it was Jorgenson's idea to use Stokke's accounts to conduct these illegal trades and that the proceeds from the trades were to be split evenly between the two of them," said Moran.

Stokke admitted that the profits were to be used to launch a biotech hedge fund the two wanted to operate. Stokke said he delivered $40,000 to $50,000 to Jorgenson in cash from the proceeds.

"Abusing access to Microsoft's confidential information and generating unlawful trading profits is not a wise or legal business model for starting a hedge fund," said Daniel Hawke, chief of the SEC's Market Abuse Unit, in a statement.

In its lawsuit, the SEC has demanded that the pair return their ill-gotten gains. For its part, federal criminal prosecutors said that the two face up to 20 years in prison and fines of up to $5 million.

The criminal complaint against Jorgenson and Stokke can be found on the U.S. Attorney's website ( download PDF), while the SEC's civil lawsuit is available from the agency's site ( download PDF).